FBR collects withholding tax rate at 0.4 percent under Section 236P of Income Tax Ordinance, 2001 from non-filers of income tax returns. The government introduced the provision, through Finance Act 2015, to compel people having taxable income to declare their income and wealth statements. Withholding tax rate was fixed at 0.6 percent on cash transactions above Rs50,000/day. The rate was, however, reduced to 0.3 percent soon after the introduction. The rate was inched up to 0.4 percent in May.

The previous government, in the budget for the fiscal year of 2018/19, decided to continue the levy and fixed the rate at 0.4 percent instead of 0.6 percent, considering its effectiveness in motivating filing of returns.

FBR collected Rs1.047 trillion in overall withholding tax collection during the last fiscal year as against Rs944 billion a year ago, showing an increase of 10.9 percent.

The collection of tax from contracts remained a major revenue spinner under this head.

A FBR’s report said only nine major components of withholding taxes contributed around 87 percent to the total collection. These included contracts, imports, salary, telephone, dividends, bank interest, cash withdrawal, electricity and exports.

Further break-up revealed that the share of only two heads of withholding tax: contract and imports was around 48 percent. Addition of withholding tax on salary raised the share of these three items to more than 60 percent of the total withholding taxes.

“More diversification in withholding tax is needed which is possible through finding out new avenues,” FBR’s report added.

(This news/article originally appeared in The News on September 9th, 2018)